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Facts
The assessee's assessment for AY 2011-12 was completed at nil income. Subsequently, the AO reopened the assessment u/s 147 & 148 of the Act after more than four years from the end of the assessment year. The assessee raised objections against the reopening, which were disposed of by the AO without a speaking order.
Held
The Tribunal held that the reopening of assessment was invalid because the AO failed to record proper satisfaction, did not conduct an independent inquiry, relied on borrowed satisfaction, and disposed of the assessee's objections in a cryptic manner without a speaking order. The reopening was also beyond the four-year period without fulfilling the conditions of the proviso to Section 147.
Key Issues
Whether the reopening of assessment beyond four years from the end of the assessment year is valid without fulfilling the conditions of proviso to Section 147 and without a speaking order for disposal of objections.
Sections Cited
139(1), 153A, 143(3), 147, 148, 151, 143(2), 142(1), 144, 68
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Income Tax Appellate Tribunal, “D” BENCH, KOLKATA
This is an appeal preferred by the assessee against the order of the Commissioner of Income-tax (Appeals), Kolkata-27(hereinafter referred to as the “Ld. CIT(A)”] dated 30.07.2025 for the AY 2011-12.
The common issue raised in ground no.1 to 4 of assessee’s appeal is against the order ld. CIT (A) upholding the reopening of assessment u/s 147 read with section 148 of the Income-tax Act, 1961 (the Act) which was made by the ld. AO invalidly without satisfying the necessary pre-conditions for reopening of assessment and accordingly, the assessee prayed that the reopening of assessment may kindly be quashed.
2.2. The ld. CIT (A) confirmed the order of the ld. AO on legal issue by upholding the reopening of assessment in a very cryptic manner.
2.3. The ld. AR vehemently submitted before us that the reopening of assessment and the consequent order framed u/s 147/144/153A/143(3) of the Act dated 28.12.2018, is nullity and invalid in the eyes of law on several counts. The ld. AR submitted that first and foremost argument is that the assessment in this case has been framed u/s 143(3)/153A vide order dated 27.03.2014 and thereafter the reopening u/s 147 of the Act was made by issuing notice u/s 148 of the Act on 30.03.2018. The ld AR agrued that
The second plea of the assessee is that the case of the assessee has been reopened on the basis of borrowed satisfaction of DDIT (Inv) Unit-1(2), and not on the basis of the tangible material showing escapement of income and formation of belief of the AO that income has escaped assessment but in the present case except the 3.1. The ld. AR also referred to the Circular of the CBDT 147/140/2017-A7PC-1 dated 10.01.2018, which lays down standard operating procedure for recording satisfaction u/s 147 of the Act. The
Arguing the third limb, the ld. AR submitted that while disposing the objections vide letter dated 16.12.2018, the ld. AO in para no.6 has rejected the contention raised by the assessee qua reopening of assessment beyond four years from the end of the relevant year but before the expiry of six years. The ld. AO simply stated in the rejection order that notice u/s 148 of the Act was issued on 30.03.2018, only after obtaining sanction from PCIT (C)-2, Kolakta. The ld. AR therefore contended that even the objection was not disposed off on this issue by way of speaking order rendering the assessment framed to be nullity and bad in law. The ld AR relied heavily on the ratio laid down in GKN Driveshafts (India) Ltd. vs. Income-tax Officer [2003] 259 ITR 19 (SC)/[2003] {25-11-2002}. The ld. AR referred to the letter dated 16.12.2018, addressed by the AO to assessee disposing off the objections, wherein the same has not been passed in a speaking manner. For example, the ld. AR referred to the objections raised by the assessee on reopening of assessment beyond four years but before the expiry of six years from the end of the relevant assessment year and issue of notice u/s 148 of the Act without satisfying the requirement as laid down u/s 151 of the Act. The ld. AO while rejecting the objections simply noted that notice u/s 148 of the Act was issued after obtaining sanction of PCIT, Kolkata-2. Similarly, the ld. AR submitted that on the issue of borrowed satisfaction the ld. AO simply stated that information was received which was the4 basis for formation of belief and thus, disposed off the objections filed by the assessee in a cryptic manner and not by way of speaking order. Therefore, proceeding u/s 148 of 4.1. The ld. DR on the other hand relied heavily on the orders of the authorities below by submitting that the reopening of assessment has has been made validly after following the procedure laid down under the Act. The ld. DR submitted that information was received from the investigation wing that assessee has received accommodating entry of ₹50 crores from M/s Pahargoomiah Exports Ltd. and accordingly, the case of the assessee was reopened. The reopening was made after obtaining the sanction of the competent authority. Therefore, the argument of the ld. AR qua reopening beyond four years being bad in law as the same was based on borrowed satisfaction and without disposal of objection filed by the assessee are devoid of any merit and may kindly be dismissed.
4.2. After hearing the rival contentions and perusing the materials available on record, we find that the reopening u/s 147 of the Act was made by issuing notice u/s 148 of the Act on 30.03.2018. Pertinent to note that assessment u/s 143(3) of the Act / 153A of the Act was made in this case vide order dated 27.03.2014. Obviously, the reopening was made beyond four years from the end of the relevant assessment year but before six years. Therefore, the reopening could have been made only in accordance with the provisions of Section 147 of the Act which provides that where the assessment is framed u/s 143(3) of the Act and 147 of the Act is to be invoked after four years from the end of the relevant assessment year then the escapement of income has to be attributed to the failure of the assessee to fully and truly disclose the material fact qua the said income during the assessment proceedings. However, we note that 4.3. So far as the reopening of assessment on borrowed satisfaction is concerned, we note that the ld. AO has simply noted the information received from the investigation wing and hurriedly concluded that the income has escaped assessment to the extent of 50.00 crores received from M/s Pahargoomiah Exports Ltd. We note that the ld. AO has not conducted any enquiry before the reopening of assessment and recorded the reasons to believe by relying on the information received. In other words, there is no live link between the information received and formation of belief by the ld. AO. In our opinion, the ld. AO is supposed to conduct an enquiry on the basis of information received which is trigger which is missing in the present case. We note that the ld. AO simply relied on the borrowed satisfaction of the investigation wing. In our opinion, the reopening of assessment on the basis of borrowed satisfaction without application of mind is not permissible under the Act. The case of the assessee find 4.4. The Hon'ble Delhi High Court in case of Principal Commissioner of Income-tax-6 vs. Meenakshi Overseas (P.) Ltd. [2017] 395 ITR 677 (Delhi)[26-05-2017], has held that reopening made on the basis of borrowed satisfaction cannot be sustained where the reasons failed to demonstrate live link between the tangible material and formation of the reason to believe that the income has escaped assessment, as under:-
“26. The first part of Section 147 (1) of the Act requires the AO to have "reasons to believe that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. ……………… 36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment.
4.5. Similarly, the Hon'ble Bombay High Court in case of Principal Commissioner of Income-tax-5 vs. Shodiman Investments (P.) Ltd. [2020] 422 ITR 337 (Bombay)[16-04-2018], has held as under:-
13. In this case, the reasons as made available to the Respondent- Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent-Assessee has indulged in any activity which could give rise to “The CBDT vide Circular 247/140/2017-A7PC dated 10.01.2018 has laid down a standard procedure for recording of satisfaction u's 147 of the IT Act, 1961. Here the reopening relates to a case where regular assessment was completed u/s 1433/153A of the Act and a period of 4 years from the end of the assessment year had already expired. Thus the standard operating procedure to be followed for recording of satisfaction/recordings reasons for reopening in sach cases as prescribed by the CBDT are as under- a. Brief details of the assessee which includes nature of business, ITR, assessment details should be given. b. Brief details if information collection/received by AO should be given c. Analysis of information collected/received d. Enquiries to be made by the AO as a sequel of information received and result thereof e. Findings of the AO on the basis of analysis of information received and result thereof f. Basis of forming reason to believe and details of escapement of income-the AO will draw nexus between the findings and reason to believe. g. Findings of the AO on true and full disclosure of the material facts necessary for assessment under proviso to section 147 of the Act:- The Ld. AO is required to give details and instances along with corroborative material to show that the assessee had not disclosed fully and truly all material facts necessary for his assessment. h. Applicability of the provision of section 147/151 to the facts of the Case- The AO had to mention the following: Return was filed, assessment u/s 143(3) was made and 4 years from the end of relevant assessment year has expired in this case 12. Having heard the learned counsel appearing for the respective parties and having gone through the materials on record, we are of the view that the AO while disposing off the preliminary objections filed by the writ applicant against the reasons recorded for reassessment, has not properly dealt with the objections. In the base of GKN Driveshafts India Ltd. (supra). the Supreme Court has laid down the procedure as to the manner of dealing with the objections raised against the notice under section 148 of the Act. The Supreme Court has held that when a notice under section 148 of the Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notice. It was further held that the AO is bound to furnish reasons within a reasonable time and upon receipt of reasons, the noticee is entitled to file an objection to issuance of notice and AO is bound to dispose of the same by speaking order. In the case of SABH Infrastructure Ltd. (supra), the Delhi High Court, has held that the exercise of considering the assessee's objections to the reopening of the assessment is not a mechanical ritual. It is a quasi judicial function. The order disposing of the objection should deal with each objection and give proper reason for conclusion. The order should reflect proper application of mind." 4.8. Further the Hon'ble CESTAT in the case of Amway India Enterprises Pvt. Ltd. vs. C.S.T., Delhi (14.05.2015-CESTAT - Delhi): 2015/39/S.T.R.1006(Tri. - Del), has held as under:
"20. In view of the aforesaid cases of the Hon'ble Supreme Court as well as this Court, it is clear that the reason is the heartbeat of the order and without reason, the order becomes dead.
The administrative order, without any reason, causes prejudice to the person against whom it is passed. The Hon'ble Supreme Court, time and again, has emphasized the importance of recording reason for the decision by the administrative authorities.
In the case in hand, after perusal of the material available on record, we find that while passing the impugned order dated 13.7.2019, the respondent No. 3 has not assigned any reason for changing the category of the petitioner from Group -1 to Group-3 for the retail outlet dealership 23. For the reasons mentioned above, we find that the impugned order dated 13.7.2019 cannot be sustained in the eyes of law and it is, accordingly, quashed.
The matter is remanded back to the respondent for passing afresh reasoned and speaking order after furnishing opportunity of hearing to all the stake holders." In view of the above, it shall be clear that a speaking order means an order speaking for itself. Speaking order or reasoned order is considered the third pillar of natural justice. A reasoned decision is called a reasoned decision because it contains reasons of its own in its support. When the adjudicating body provides the reason behind their decision, the decision is treated as a reasoned decision. In the present case of the assessee, the Ld. AO had disposed the objections just for the sake of formality. In the disposal of objections dated 16.12.2018, the Ld. AO has at page 2 (para 8) simply brought on record that "hence in view of the discussions made above the objections raised by the assessee to the reasons recorded for reopening of assessment in the captioned case are not acceptable. The objections raised by the assessee are therefore, disposed off." No discussion was made whatsoever pointing out as to how the books/evidences were held to be not reliable or pointing out to any information/document which proved the claim of the assessee to be wrong. Thus the disposal of objection was passed without providing any reasons or justification for rejecting the claim of the assessee. In the instant case, the objections of the assessee were not disposed off by passing speaking order. None of the objections were disposed off vide order by passing speaking order nor the objection were addressed at the time of passing order u/s 147 of the Act on 28.12.2018 as merely relying on what was written in the reasons
Since, we have decided legal issue in favour of the assessee, the issue raised on merit are not being adjudicated at this stage and is left open to decide at later stage if need arises for the same.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 31.12.2025.